Longevity loads great strain on our pension pot

BRITONS are living in fear of running out of money in retirement as rising life expectancy puts more pressure on their pension savings.

Too many are failing to save enough because they do not realise just how long they are likely to spend in retirement.

While rising life expectancy is a good thing, nobody wants to spend their final years scraping by on what the state provides but that is the fate many now face.

People in their 50s and 60s dramatically underestimate their chances of living to age 75 or 85, according to research from the Institute of Fiscal Studies.

The result is that they save too little money for their retirement, or spend too freely in the years after they stop working.

Tom Selby, senior analyst at AJ Bell, said the figures echoed his company’s findings that almost half of us do not expect to survive much beyond our 80th birthday: “Yet men have around a 70 per cent chance of reaching that age and women have around an 80 per cent chance, with many set to live a lot longer than that.

“If large numbers of people massively underestimate life expectancy and spend too long in retirement as a result, they risk running out of money early and potentially falling back on the state.” BOOMERS OR BUST Separate research from SunLife showed that almost half of those over-55 now fear that their pension and other savings are insufficient for retirement.

Chief executive Dean Lamble said that while younger generations may think baby boomers have “never had it so good”, the reality is different: “Four in 10 worry whether they have enough money in their pension to cover their retirement, and even more are concerned that their money will run out before they die.”

He said baby boomers are being caught in a “triple squeeze” of longer lives, smaller pensions and rising prices: “Two thirds blame the rising cost of living for not being as comfortable as they had hoped and almost half believe poor interest rates have dented their savings.”

Lamble said the average pension pot of someone over 55 is around £105,496, whereas they have on average £280,000 of equity in their homes: “Eight in 10 homeowners are ready to use their housing wealth to fund retirement options, with a third considering equity release to access some of the value tied up in their home.”

The danger of running out of money in retirement is increasing as retirees snub annuities in the wake of pension freedom reforms, introduced in April 2015.

Many have turned to income drawdown instead, leaving their pensions invested and drawing money as they need it. Andrew Tully, pensions technical director at Retirement Advantage, said drawdown is tempting but dangerous: “The ability to dip into your pension like a bank account comes with many new risks including paying too much tax on withdrawals, being scammed out of your money or taking on too much investment risk.” DRAWDOWN DOWNSIDE By snubbing an annuity you are turning down a guaranteed income that will last for as long as you live, he added.

“Income drawdown should come with its own set of health warnings because you can lose money as stock markets may go down as well as up over the course of your retirement.”

Drawdown also introduces the added danger of withdrawing too much from your pension: “It could make more sense to split your pension between income drawdown and an annuity, to get the best of both worlds,” Tully added.

Women in drawdown have 37 per cent less retirement income than men, according to a report from Zurich UK.

Head of strategic partnerships Rose St Louis warned: “Women face the twin threat of a smaller pot at retirement combined with a longer life expectancy.

“The need for financial advice and guidance in retirement is greater than ever.”